February 12, 2009

Revision of theater financing is opportunity to rework the deal, Horvath says, but board shows no support

As the La Grange village board Monday night reviewed proposed revisions to an agreement that extends $1 million in financial aid to the La Grange Theatre, Village President Liz Asperger noted that the changes would provide the village with more security in the event the downtown theater failed.

Trustee Michael Horvath, on the other hand, said he was more concerned about the "upside" of the village's investment in the theater's renovation and that he believes the deal denies La Grange taxpayers the opportunity to fully share in any success that might bloom from it.

"The million dollars can bring the theater back to life and it can be wildly successful," Horvath said. "The theater owners can take lots of profits out of it and at the end of the day the taxpayer will get nothing back and will not share in those profits. Why shouldn't the taxpayer as the catalyst investor [...] share in that success in some way, shape or form?"

Horvath said he wanted to reconsider charging an entertainment tax on each theater ticket sold. That idea was seriously discussed by the board during hearings held last year, but later discarded.

Horvath described the theater deal as a "bailout" similar to those being hammered out on the federal level for the banking and automotive industries. The difference, he said, is that taxpayers will profit if the federal efforts are successful.

Asperger bristled at the "bailout" comparison and chided Horvath for attempting to resurrect a debate that she said was put to rest Nov. 9 when the board in a close vote agreed to allocate $1 million in tax increment financing (TIF) funds to pay for structural renovations to the theater that its owners say are necessary to continue operating as a movie venue.

"Your question is one that you have asked on several occasions before," Asperger said to Horvath. "My short answer is that your desire to participate through some sort of repayment mechanism, as you have suggested, is simply not part of the transaction that the board structured with the owners."

"Well, that deal was a purchase, not a loan," Horvath retorted. "These are new terms, so I am suggesting a new term as part of the loan."

Under the revised terms of the million-dollar agreement reviewed by the board Monday night, the village would purchase an easement on the theater's facade for $237,500 and provide the remaining $762,500 in the form of a loan that would be repaid only if the theater ceases to operate as a movie venue. Originally, the board agreed to pay the entire $1 million in return for the facade easement, but the theater's owners, John Rot and David Rizner, asked for the revisions after realizing that receiving payment in excess of the facade's appraised value likely would result in taxable capital gains.

Asperger argued that the revisions were more about the form of the financing, not its substance. "We still have a million-dollar investment," she said. "We still invest our money into the theater through the same escrow vehicle with the same protections, the same operating covenants and the same repayment obligation should the theater cease to operate, as we did originally. We simply have structured it as a loan actually to provide additional security to the village in the form of a junior mortgage."

Asperger also disputed Horvath's contention that taxpayers would not share the wealth in the theater's success. "I think a majority of the board approved participation in this project because of their stringent belief that in fact it was a very beneficial transaction to the taxpayers, and that there were multiple ways in which members of our community and taxpayers would benefit as a result of our involvement in the project."

Trustee Mark Langan agreed with Asperger and identified specific ways he thought the project would profit both taxpayers and the community at large. "The benefit we're going to get, should it be successful, is increased sales taxes, increased activity in the village and continued success of our downtown," he said. "Those are the pieces we're going to get by this moving forward.

"We talked about [the deal] for six months," Langan said. "We had a very difficult vote. We voted 4-3 to move forward. Let's move on. We've got other business to handle."

When Horvath proposed polling the board to see if other trustees shared his sentiments, no one seconded the notion.

"It sounds like the majority is saying 'no'," Horvath said.

Actually, there will be a vote on the matter, likely at the board's Feb. 23 regular meeting, when trustees will be asked to formally approve the revisions and an intercreditor agreement with First National Bank of La Grange, which holds a mortgage on the theater.

Comments

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I think its also important to note that the security provided by the Theater does not cover the taxpayer investment, so even if the Theater closes, there is little chance of we taxpayers seeing most (if any) of our investment return.

The arguments made by President Asperger that the taxpayer will get its money back by the business generated by the theater would require the Theater to produce nearly $100,000,000 (one-hundred million dollars)in additional business over what it generates today. Given that the Theater owners themselves said that they expect attendance to be relatively flat over the coming years, where will that increase come from? The answer is that is won't happen and the taxpayer will be stuck with another dumb investment by fiscally irresponsible politicians.